China hard landing could adversely impact Middle East

Dubai: The growing risk of a hard landing for China's economy would result in global economic slowdown by an average of 0.4 percentage points annually over the 2015-17 period, according to a scenario developed by an IHS study.

IHS economists expect that the excessive leverage in China's financial system will eventually force it to slow down its economic growth.

"China has a significant debt problem; the national debt is double the size of its gross domestic product (GDP). Although [a] hard landing and tightening of credit following a crash in the housing market and defaults by real estate developers have a relatively low probability, such a scenario could mean significant erosion in domestic demand and China could experience an economic slow down," said Nariman Behravesh, chief economist of IHS.

A sharp slowdown or a deflation in China could have wider consequences for Middle East economies, especially oil exporters.

"A China hard landing would mean the Middle East would experience weaker exports, lower tourism and business activity and probably resurgence of risk aversion by global companies," Behravesh said.

Even in a weaker growth scenario where China's economy slows down by 3 to 4 per cent, oil prices are expected to fall to $50 to $69 per barrel.

"A hard landing in China would mean real GDP growth will be slower in the Middle East in the short run, but IHS does not expect the slowdown to have major long-term consequences on growth in the Middle East," Behravesh said.


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